Labour costs still challenge

New Zealander's hospitality sector sales grew strongly in
the year ended March, but labour costs remain the biggest test
for businesses.

The Restaurant Association's Hospitality Report 2014 said
national industry sales grew 9.8% to $7.6 billion in the year
ended March.

While hospitality operators were ''cautiously optimistic''
about the rest of 2014, many were hesitant to announce a
return to the profitability of pre-recession times.

''It is clear there continue to be many challenges to
remaining profitable in hospitality,'' association chief
executive Marisa Bidois said.

The report also showed the cost of labour was the major
challenge, with 51% of those surveyed by the association
expressing their concern. Last year, 55% of those surveyed
were worried about labour costs.

The lack of skilled employees concerned 41%. Competition from
other businesses remained a steady concern on 34%, as did
food costs on 29%, operating costs on 21% and government
legislation and compliance moving up, with 18% of those
surveyed being concerned.

Ms Bidois said wages continued to rise beyond customers'
expectations of price rises, a challenge and balancing act
all business owners face.

''At the same time, the industry's No 3 challenge is a lack
of skilled employees, which can place upward pressure on
remuneration. That's why building and maintaining sales
volume is the second most pressing challenge,'' she said.

Labour costs worried 70% of those surveyed in the
Queenstown-Southern Lakes district, 56% of the rest of the
South Island and 54% in Canterbury. Competition from other
businesses also rated highly in the Queenstown-Southern Lakes
district, the report showed.

Ms Bidois said the fight for the consumer's discretionary
dollar was particularly intense in the major city centres,
which had seen an influx of new businesses over the past two
years, with no sign of abatement.

One restaurateur from Auckland was quoted as saying there was
an oversupply of restaurants to population.

''They will not all survive and everyone - landlords,
suppliers, even the IRD - will end up out of pocket if this
happens,'' the restaurateur said.

Ms Bidois said many operators advocated a cap on the number
of businesses operating in a particular area and that might
be an outcome of the new alcohol laws which allowed councils,
and the community, to have a greater input into the number of
liquor licences granted.

Ms Bidois said the hospitality industry continued to rate a
lack of skilled employees as one of the key challenges facing
hospitality operators. In particular, it continued to be
prohibitively difficult to recruit for skilled senior
positions such as cafe and restaurant managers and senior
chefs. The manager position had now been removed from
Immigration New Zealand's short-term skill shortage list but
a review of the chef role at the end of last year found
enough evidence of that position for it to remain on the
long-term skill shortage list.

Nearly three-quarters of businesses consulted by the
association had recruited someone for a senior chef role in
the past year and 65% had recruited someone for a junior chef
role.

For those businesses which had employed a senior chef over
the past year, more than half of successful candidates for
the role were immigrant workers in New Zealand on a work
visa.

''We also found 96% of these businesses who were recruiting
for chefs found an unacceptable level of difficulty -
extremely difficult or difficult - in recruiting for these
positions. Sixty percent said it was `extremely difficult'
finding a suitable candidate.

''This indicates the problem has worsened over the past three
years as a survey in 2010 found 86% were having difficulty in
recruiting for these roles.''

An alarming number of key staff also appeared to be leaving
the industry permanently, with 47% of employers noting one of
the key recurring reasons staff left their business was to go
overseas. Thirty-one percent indicated employees were leaving
the industry completely, Ms Bidois said.

The expectations were for another good 12 months ahead,
although at a slightly reduced rate of growth.

''While consumer confidence is rebounding we know there are
interest rate rises on the horizon and house prices and
household debt remain of concern to many New Zealanders.

''We're forecasting growth of 4% and total revenue for the
sector of nearly $8 billion. We also expect the Auckland and
Christchurch hospitality markets to dominate the sector's
employment growth which next year will see more than 111,000
hospitality employees working in more than 15,000 outlets.''

It's great to see an increase in sales in the hospitality
sector and the concern about labour costs is certainly
justified. It's well known that this industry is
generally low paid but even so, many operators have no choice
but to increase the price of their product each time the
minimum wage increases just to survive.